4Q14 AND 2014 RESULTS E DE 2014 - Alpargatas S.A.ri.alpargatas.com.br/ingles/arquivos/informacoes_financeiras/... · 4Q14 AND 2014 RESULTS E DE 2014 1 CONFERENCE CALL ... Alpargatas

4Q14 AND 2014 RESULTS E DE 2014

1

CONFERENCE CALL

(in English)

Date: March 10, 2015

at 12 pm BRT / 11 am US EST /

3 pm London

Phone:

Dial-in Brazil: +55 11 3193-1001

Dial-in USA: +1 786 924-6977

Code: Alpargatas

Slides:

http://ri.alpargatas.com.br

Speaker:

José Roberto Lettiere

CFO

IR

[email protected]

[email protected]

[email protected]


2

INTRODUCTION

Alpargatas' aspiration to be a global company of desired brands is the foundation of a strategy which has

been in place for twelve years and is working well. In its 108 years in operation, the company's main learning

has been in brand development – a competency it has mastered so well that will take Alpargatas to the

ranking of the five largest companies in the world in the segments in which it operates. In a more complex

year for business, Alpargatas generated consolidated net revenue of R$ 3.7 billion, an increase of 8.3% (or

13.7% discounting the FX effect) over 2013. Another highlight was the progress in the international

operations, which showed significant growth in revenues and profitability compared with 2013, evolving in

alignment with the projections of the organization's internationalization strategy.

In Alpargatas Argentina, the restructuring involved all areas. The footwear portfolio was optimized and

distribution channels were expanded, as were investments in Topper communication and sports sponsorship,

driving growth in net revenue. Production costs and expenses were reduced, the textile machinery park was

renewed and direct labor was adjusted, driving significant growth in EBITDA and margin.

Every year, Havaianas becomes better known to and more desired by foreign consumers, driving the sales

and profitability of the international sandals businesses. In the United States and in Europe there was a three

percentage point increase in spontaneous brand awareness according to a brand tracking survey conducted

by Millward Brown in the third quarter of 2014. This was due to various factors, worthy of note during the year

being:

• Ongoing marketing campaigns and actions.

• Expansion of the exclusive retail.

• Growth in sales to key accounts in the United States and Europe.

• Direct operations in five new countries: Germany, Austria, Belgium, Holland and Luxemburg.

• Partnerships with renowned brands such as Mara Hoffman and Valentino.

In Brazil, key factors for the businesses in 2014 were:

• Gain in sandals market share, driven by brand strength and higher sales volume due to greater production

capacity at the Montes Claros plant.

• Havaianas' debut in the apparel segment. The first collection with around 500 models was warmly

welcomed by Brazilian consumers, with sales above the estimates.


3

• Increase in number of Havaianas stores, totaling 389 units located in main Brazilian cities by the end of

the year, as part of company strategy to make retail a business that adds more value to operations.

• Preparation for incorporation (finalized in February 2015) of Companhia Brasileira de Sandálias (CBS),

owner of the Dupé brand, which will drive decreased costs and more efficient administration with the

integration of systems and processes.

• Conclusion of acquisition of control of Osklen, a reference in the luxury lifestyle fashion market. The brand

is preparing to consolidate its presence in Brazil and begin international expansion.

• Renewal of Mizuno license for 13 years + another 13 years. The 26 years license contract ensures the

brand will continue to gain market share in the running performance segment in Brazil and expand sales

to other Latin American markets.

• Celebration of 80th anniversary of Rainha, Brazil's most traditional sporting goods brand.

• December start up of Value Improvement Program (VIP), focused on reduced costs and gains in

manufacturing productivity as of 2015.

• Divestment in Tavex.

The Alpargatas business model has provided consistent operational cash generation, totaling R$ 194.1

million in 2014, even with high investments in Capex, resulting in a cash balance of R$ 485.6 million at the

end of the year.

In a year in which the business environment was more adverse than in 2013, the focus on brand

management, product innovation, efficient distribution and communication, and commercial strategy was

fundamental for Alpargatas' performance.


4

MAIN CONSOLIDATED FINANCIAL INDICATORS

Net Revenues 1,060.0 964.9 9.9% 3,711.2 3,426.0 8.3%

Domestic businesses 806.0 732.6 10.0% 2,566.0 2,471.8 6.1%

Alpargatas Argentina 179.6 159.1 12.9% 644.4 603.9 6.7%

International Sandals Businesses 74.4 73.2 1.6% 500.8 404.3 23.9%

Gross Profit 433.9 375.7 15.5% 1,498.2 1,420.6 5.5%

Domestic businesses 347.6 306.1 13.6% 1,021.1 1,056.7 -3.4%


International Sandals Businesses 38.5 38.6 -0.3% 312.5 243.4 28.4%

Gross Margins 40.9% 38.9% 2.0 p.p 40.4% 41.5% -1.1 p.p

Domestic businesses 43.1% 41.8% 1.3 p.p 39.8% 43.7% -3.9 p.p

Alpargatas Argentina 26.6% 19.5% 7.1 p.p 25.5% 20.0% 5.5 p.p

International Sandals Businesses 51.8% 52.7% -0.9 p.p 62.4% 60.2% 2.2 p.p

EBITDA 153.1 136.2 12.4% 470.5 494.4 -4.8%

Domestic businesses 140.4 131.4 6.8% 307.9 413.1 -25.5%


International Sandals Businesses -6.1 -0.9 - 90.9 56.4 61.2%

EBITDA Margins 14.4% 14.1% 0.3 p.p 12.7% 14.4% -1.7 p.p

Domestic businesses 17.4% 17.9% -0.5 p.p 12.0% 17.1% -5.1 p.p

Alpargatas Argentina 10.5% 3.6% 6.9 p.p 11.1% 4.1% 7.0 p.p

International Sandals Businesses -8.2% -1.2% -7.0 p.p 18.2% 14.0% 4.2 p.p

Net Income 84.9 72.7 16.8% 280.2 310.0 -9.6%

Net Margin 8.0% 7.5% 0.5 p.p 7.5% 9.0% -1.5 p.p

2013Change 20144Q14(R$ million, except margins) Change4Q13


5

DOMESTIC BUSINESSES

Sales volume

In the fourth quarter, volume growth in the domestic

businesses was 5.4% higher than in 4Q13, due to the

increase in sandals and Mizuno sales and the

consolidation of Osklen volume, which added another

513,000 units of footwear, apparel and accessories.

In 2014, sales were 3.2% up on 2013, totaling 235.6

million units.

Sandals

In the fourth quarter, Havaianas sandal, apparel and footwear volume, together with Dupé, increased 6.0% in

comparison with 4Q13 in Brazil. The expansion, mainly in the second half of the year, is explained (i) by the

success of the 2014/15 sandals collection, which resulted in a gain in market share; (ii) by the expansion of

the Havaianas retail, which ended the year with 389 stores in Brazil; (iii) by the evolution of the non-sandals

category, which grew 67.9% compared with 4Q13, driven by the Soul Collection closed footwear line and the

successful debut of Havaianas apparel in May.

In 2014, units sold totaled 218.020 million, an increase of 3.7% over 2013 volume, of which 216.854 million

were pairs of sandals, an increase of 3.5%.

68.82860.887

72.532228.266

235.625

0.513

0.513

4Q13 3Q14 4Q14 2013 2014

DOMESTIC BUSINESSES

SALES VOLUME

FOOTWEAR, APPAREL AND ACESSORIES

(million units)

+ 5.4% + 3.2%

Osklen’s sales volume in 4Q14


6

Other factors driving Havaianas product sales in the fourth quarter were:

• The good performance of the Havaianas Sport men's line and the women's Flat line, as well as licensed

products, especially Snoopy, Minions and Frozen.

• TV campaign “Essa é a minha” with commercial starring the actor Chay Suede, as well as advertisements

in magazines and digital media.

• Exposure of Havaianas brand at the Copacabana Palace New Year's party in Rio de Janeiro, and at the

Espaço Cultural Veja São Paulo, at Riviera de São Lourenço, a famous beach in the state of São Paulo.

Sporting Goods

In the fourth quarter, the volume of sports footwear was 13.5% down on 4Q13 in Brazil. Mizuno recorded a

5.6% volume increase compared with 4Q13, due to a more aggressive sales plan. Topper and Rainha,

however, had their portfolios restructured with the removal of some products, leading to a drop in volume

compared with 4Q13.

In 2014, Sporting Goods volume plus professional boots totaled 17.092 million units, a 5.1% volume

decrease compared with 2013.

63.63956.370

67.441210.261

218.020

4Q13 3Q14 4Q14 2013 2014

DOMESTIC BUSINESSES

SALES VOLUME

HAVAIANAS AND DUPE SANDALS +

HAVAIANAS BRAND EXTENSION

(million units)

+ 6.0% + 3.7%

63.32556.086

66.914209.516

216.854

4Q13 3Q14 4Q14 2013 2014

DOMESTIC BUSINESSES

SALES VOLUME

HAVAIANAS AND DUPE SANDALS

(million pairs)

+ 5.7% + 3.5%


7

In the fourth quarter, the highlights for the sports brands in Brazil were:

Mizuno

• Early launch of Prophecy 4 running footwear, the brand's most technological model, with new fabric and

design.

• Launch of Trail line, with three cross country running models equipped with multidirectional grip and

technology that ensures adherence and mobility.

• Campaign “Tecnologia de ponta contra o mimimi” of the Prophecy 4 running footwear in print media, the

internet and points of sale, underscoring model's capacity to prevent injuries.

• Organization of the Uphill Marathon by the brand at Serra do Rio do Rastro (Santa Catarina state), with an

internet film, program on the Off Sports and Adventure channel and a special edition of the Sayonara

model, generating high brand exposure.

• Organization of the Ironman in Fortaleza, Ceará state, the Mizuno Half Marathon and Circuito das

Estações race circuits in various state capitals.

Rainha

• Excellent receptiveness for Energy model, the Rainha footwear receiving the best evaluation from the

Instituto Brasileiro de Tecnologia do Couro, Calçados e Artefatos (IBTeC), with technology that optimizes

damping and flexibility.

• Continuation of Energy footwear marketing campaign in social media and points of sale.

• Relaunch of classic Rainha System RG5100 model, as part of the commemoration of the brand's 80th

anniversary.

• Success of apparel line, in particular the fitness models, driving brand growth in the segment.

3.171

2.754 2.743

11.031 10.283

4Q13 3Q14 4Q14 2013 2014

DOMESTIC BUSINESSES

SALES VOLUME

SPORTS FOOTWEAR

(million pairs)

- 13.5% - 6.8%

5.1894.517

4.578

18.005 17.092

4Q13 3Q14 4Q14 2013 2014

DOMESTIC BUSINESSES

SALES VOLUME

SPORTING GOODS + PROFESSIONAL BOOTS

(million units)

- 11.8% - 5.1%


8

• Remodeling of website, with the inclusion of new functionalities and greater exposition of the brand's

products and look book.

Topper

• Growth in apparel and accessory sales, in particular bermuda shorts, backpacks, gloves and balls.

• Greater brand exposure in key e-commerce sites, with dedicated Topper product spaces at major

customers.

• Organization of “A Hora do Jogo” – an event promoted by Topper with key opinion makers and the ex-

goalkeeper Marcos in a football match, strengthening brand awareness.

• Restructuring of the website, prioritizing and optimizing product communication.

Timberland

• Highlight for EK Hookset Handcrafted and Rangeley footwear in the summer 2014/15 collection and for

the apparel and accessories line.

• Campaign “A vida tá aqui fora”, with interactive window displays at all stores, in online media and hot site.

• Advertisement in Caras magazine.

• Opening of store in Londrina (Paraná state).

• Focus on online communication, surpassing the mark of 1 million followers on Facebook in December,

and high rate of engagement in the social network.

Osklen

On November 28th, 2014 Alpargatas' ownership interest in Osklen increased to 60%. Acquisition of control

was ratified at an extraordinary shareholders meeting on February 2nd, 2015. Osklen is one of the major

luxury lifestyle fashion brands in Brazil. It is involved in the design, manufacture and distribution of apparel,

footwear and accessories for men and women. Sales volume in 4Q14 totaled 513,000 units. Osklen ended

2014 with 1,100 employees and 87 stores, 80 of which in Brazil and seven overseas. Its main distribution

channel is its own stores, followed by multibrand stores and franchises (the brand's retail network is

described in the next chapter).

The main events for Osklen in the fourth quarter were:

• Fall/winter 2015 collection fashion show at São Paulo Fashion Week (SPFW), with positive percussion in

the most important media in the segment, such as Vogue, Elle, Harper’s Bazaar, Marie Claire, L’Officiel,

GQ, Glamour, Glamurama, Lilian Pacce, Chic and RG.

• Launch of Osklen Sunglasses line, with dissemination in the main fashion segment websites.

• Opening of four stores: Leblon, in Rio de Janeiro, Moema and Vila Madalena, in São Paulo, and Maceió

(Alagoas state).


9

Retail

At the end of 2014, the Alpargatas store chain totaled 508 units in Brazil, 53 more than at the end of 2013,

and 30 more than at the end of 3Q14. The following table shows the breakdown of stores by brand:

Havaianas

Havaianas retail recorded a 4.0% increase in net revenue on a same store basis compared with 4Q13, due

to the good receptiveness to the new sandals collection. Using the same criteria, revenue growth for the year

was 16.0%, driven by the performance of the stores during the World Cup.

Osklen

Osklen ended 2014 with seven stores more than in December 2013. On average its units have a floor space

of 120 m2 and are concentrated mainly in the states of Rio de Janeiro and São Paulo. On a same store basis,

Osklen revenue grew 1.1% compared with 2013, with no growth in 4Q14.

Timberland

On a same store basis, Timberland retail revenue was 6.0% up on 4Q13. In the year, the increase was 4.0%

over 2013, as a result of prioritizing sales with higher prices and margins.

Meggashop Outlet

In the fourth quarter, revenue growth on a same store basis was 1.0%. For the year, using the same criteria,

the increase was 6.0% over 2013, as a result of promotional campaigns that increased consumer traffic and

drove sales.

Brand OwnStores

Franchises TotalStores

Havaianas 3 386 389

Osklen 58 22 80

Timberland 7 11 18

Meggashop 21 - 21

Total stores in Brazil 89 419 508


10

Net revenue

In the fourth quarter, net revenue for the domestic businesses grew 10.0% against 4Q13, driven by the 8.5%

increase in sandals revenue and the consolidation of Osklen (typically, 35% to 40% of this company's

revenue is generated in the fourth quarter). The growth in sandals revenue was due to an average higher

price compared with 4Q13, higher volume and an improved mix. The share of higher value sandals increased

from 48% in 4Q13 to 56% in 4Q14. Additionally, the increase in domestic revenue in the quarter was due to

the higher sales volume of Havaianas apparel, footwear and accessories, which have higher average prices.

In 2014, Alpargatas' revenue in Brazil reached R$ 2,566.0 million, an increase of 6.1% over 2013. This was

due to 9.3% growth in sandals revenue and the consolidation of Osklen revenue. Sporting goods sales were

down on 2013, because a more competitive market and higher stocks led to the granting of discounts to

customers, resulting in sales with lower average prices.

732.6639.7

806.0

2,417.82,566.0

77.6

77.6

4Q13 3Q14 4Q14 2013 2014

DOMESTIC BUSINESSES

NET REVENUE

(R$ million)

+ 10.0% + 6.1%

Osklen’s net revenue in 4Q14

DOMESTIC BUSINESSES

NET REVENUE BREAKDOWN

61%39%

Sandals Sporting Goods

60%30%

10%

Sandals Sporting Goods Osklen

4Q13 4Q14

DOMESTIC BUSINESSES


2013 2014

57%43%

Sandals Sporting Goods

59%38%

3%

Sandals Sporting Goods Osklen


11

Gross profit and margin

In the fourth quarter, the gross profit of the domestic businesses was 13.6% higher than in 4Q13, while gross

margin increased 1.3 percentage point. Gross profit was impacted by:

Increase in the share of sandals (with higher margins) in revenue in Brazil (from 61%, in 4Q13, to 67%, in

4Q14, not counting Osklen).

Consolidation with Osklen.

Lower average price in the sporting goods sales mix, affecting the net revenue of the domestic

businesses.

Impact of FX on the cost of imported finished products and the cost of rubber. In spite of the 3.3% drop in

average cost in dollars, the devaluation of the real in the 4Q14 against 4Q13 increased the price of the kilo

of rubber by 5.9% in the quarter.

In 2014, the gross profit of the domestic businesses was R$ 1,021.1 million compared with R$ 1,056.7 million

in 2013. Gross margin, at 39.8%, was 3.9 percentage points lower than in 2013, due to strong cost pressure

caused by inflation and higher exchange rates than the previous year, as well as the lower dilution of fixed

costs during the Montes Claros plant ramp up phase.

306.1243.0

347.6

1,056.7 1,021.1

54.1

54.1

4Q13 3Q14 4Q14 2013 2014

DOMESTIC BUSINESSES

GROSS PROFIT

(R$ million)

Margin: % of Net Revenue

+ 13.6% - 3.4%

Osklen’s gross profit in 4Q14

41.8% 38.0%43.1%

43.7%39.8%


12

EBITDA

In the fourth quarter, the EBITDA of the domestic businesses was R$ 140.4 million, 6.8% up on 4Q13, with a

margin of 17.4%. The factors explaining the quarterly variation in the EBITDA are:

R$ 3.5 million less gross profit.

R$ 3.1 million more in operational expenses to strengthen the brands during the period.

R$ 23.5 million from the consolidation of Osklen.

R$ 7.9 million resulting from the FX impact on the average cost of rubber and imported products.

Discounting FX, EBITDA is R$ 148.3 million with a margin of 18.4%.

DOMESTIC BUSINESSES

EBITDA

(R$ million)

Margins 17.9% 15.5% 18.4% 17.4%

131.4

(3.5) (3.1)

124.8

23.5

148.3

(7.9)

140.4

EBITDA4Q13

GrossProfit

OperationalExpenses

Sub-total

Osklen FX and

Commodities

EBITDA4Q14

Sub-total


13

In 2014, the EBITDA in Brazil totaled R$ 307.9 million (R$ 413.1 million in 2013), with a margin of 12.0%

(17.1% in 2013), impacted by the lower gross profit, non-recurring expenses of R$ 25.0 million with

marketing for the World Cup and the launch of Havaianas apparel, as well as the negative effect of FX on the

cost of finished imported products and on the cost of rubber.

INTERNATIONAL BUSINESSES

ALPARGATAS ARGENTINA

Alpargatas Argentina's performance in 2014 mirrors the success of the turnaround implemented in diverse

areas, such as products, communication, production and sales channels. With the application of an efficient

pricing policy, investment in innovation for Topper products, successful sports marketing, increased

manufacturing productivity and strong control over operational expenses, the Argentinean operation

presented significant improvements in its main indicators and levels of profitability.

Sales volume

In the fourth quarter, sports footwear sales volume in Argentina increased 1.4% in comparison with 4Q13.

While in 4Q13 there were high stock levels, leading to sales and generating high volume in the period, sales

in 2014 were more evenly distributed throughout the quarters.

413.1

307.9

2013 2014

DOMESTIC BUSINESSES

EBITDA

(R$ million)


- 25.5%

Osklen’s EBITDA in 4Q14

17.1%

12.0%

23.5


14

In 2014, sports footwear sales volume totaled 6.516 million pairs, an increase of 10.2% over 2013, giving

Topper a one percentage point gain in market share in volume and almost two points in value. The results for

the year demonstrate: (i) Topper's strong connection with the Argentinean consumer, (ii) the good

performance of the exclusive Topper retail, (iii) the increase in sales to key accounts, and (iv) the successful

partnerships with brands, artists, famous personalities: Pesqueira, Martin Churba, Warner Bros. and Bolivia.

In the fourth quarter, Alpargatas Argentina's main achievements were:

• Communication campaign for new Topper collection, in particular the ads in social media and press

events.

• Launch of 2015 Rueda Verão alpargatas collection.

• Digital campaign and POS communication for footwear collections in partnership with the artists Valeria

Pesqueira and Martín Churba and the Bolivia brand.

• Organization of Mizuno Half Marathon race in Buenos Aires.

Net revenue

In the fourth quarter, Alpargatas Argentina's net revenue grew 42.4% in pesos, reaching AR$ 602.9 million in

comparison with 4Q13. Converted into reais, this represents an increase of 12.9% compared with the year

ago quarter. The increase is lower than in pesos due to the strong appreciation of the real. This expansion is

due to the growth in footwear volume, the adjustment of sale prices and the enrichment of the product mix,

both in footwear and textiles. The share of footwear in net revenue increased from 69%, in 4Q13, to 70%, in

4Q14.

1.7051.804 1.729

5.9146.516

4Q13 3Q14 4Q14 2013 2014


SALES VOLUME

SPORTS FOOTWEAR

(million pairs)

+ 1.4% + 10.2%

2.445 2.418 2.297

8.367 8.824

4Q13 3Q14 4Q14 2013 2014


SALES VOLUME

FOOTWEAR, APPAREL AND ACESSORIES

(million units)

- 6.1% + 5.5%


15

In 2014, net revenue grew 45.8% in pesos and 6.7% in reais compared with 2013, totaling R$ 644.4 million.

Footwear share was 69%, in 2014; compared with 67%, in 2013.


Alpargatas Argentina posted a gross profit of AR$ 160.8 million in the fourth quarter, a significant 94.6%

increase compared with 4Q13. In reais, gross profit improved 54.2% due to the appreciation of the currency

against the peso. At 26.6%, gross margin was 7.1 percentage points higher than in 4Q13, even with higher

production costs driven by inflation and the 22.2% increase in the average price of cotton in pesos.

159.1

177.2179.6

603.9644.4

4Q13 3Q14 4Q14 2013 2014


NET REVENUE

(R$ million)

+ 12.9% in reais + 6.7% in reais

+ 42.4% in pesos + 45.8% in pesos



69%

31%

Footwear Textiles

70%

30%

Footwear Textiles

4Q13 4Q14

67%

33%

Footwear Textiles

69%

31%

Footwear Textiles



2013 2014


16

In 2014, gross profit increased 86.8% in pesos, or 36.6% in reais, totaling R$ 164.6 million, with 5.5

percentage point growth in gross margin, reaching 25.5%. The increase in sales prices above inflation

generated gains in profitability for all the businesses – footwear, textiles and retail. Additionally,

manufacturing efficiency grew due to investments in renewing machinery in the textile unit, the greater

dilution of fixed cost and the adjustment of direct labor to production activities.

EBITDA

In the fourth quarter, EBITDA at Alpargatas Argentina totaled AR$ 65.4 million, or R$ 18.8 million, an

impressive 290.2% increase in pesos and 229.8% in reais, compared with 4Q13. Margin in the fourth quarter

grew 6.9 percentage points in reais, reaching 10.5%. The factors explaining the quarterly variation in EBITDA

are:

R$ 29.5 million more in gross profit (without commodities and FX impact) due to the strong increase in

revenue and manufacturing productivity.

R$ 10.1 million more in operational expenses due to inflation. With a greater austerity in controlling

spending, there was an increase in the productivity of these expenses, which accounted for 17.1% of net

revenue, in 4Q13, decreasing to 16.3%, in 4Q14.

31.046.9

47.8

120.5164.6

4Q13 3Q14 4Q14 2013 2014


GROSS PROFIT

(R$ million)


19.5% 26.5% 26.6%


20.0%25.5%

+ 94.6% in pesos + 86.8% in pesos


17

R$ 6,3 million from the impact of FX (real stronger than peso) and increase in the average price of cotton

in pesos. Discounting these effects, EBITDA is R$ 25.1 million, growing 340.4%, and margin increases

10.4 percentage points to 14.0%.

In 2014, EBITDA totaled AR$ 260.6 million,

an increase of 265.9%, and R$ 71.7

million, an increase of 188.0% in

comparison with 2013. Margin grew seven

percentage points in the year, reaching

11.1%. The increase in EBITDA in the year

is explained by the strong growth in gross

profitability and higher productivity of

operational expenses, which decreased

from 16.7%, in 2013, to 15.1,% in 2014.

24.9

71.7

2013 2014


EBITDA

(R$ million)

+ 188.0%

4.1%

11.1%

Margins 3.6% 14.0% 10.5%


EBITDA

(R$ million)

5.7

29.5

(10.1)

25.1

(6.3)

18.8

EBITDA4Q13

Gross Profit OperationalExpenses

Sub-total

FX and

Commodities

EBITDA4Q14


18

INTERNATIONAL SANDALS BUSINESSES

ALPARGATAS USA, ALPARGATAS EUROPE AND EXPORTS

Sales volume

In the fourth quarter, the 53.7% volume

growth in the American operation

compared with 4Q13 was impressive.

This was driven by expansion in all

channels, in particular the key accounts

and retail, with seven Havaianas stores in

operation in the United States at the end

of 2014. The products sold by the

Alpargatas USA and Alpargatas Europa

subsidiaries plus exports represented

91.7% of 4Q13 sales, the result of the

challenge the company faces in exports to

South America, because of the economic

situation, in particular in Argentina and

Venezuela.

In 2014, international sandals and accessories sales totaled 34.830 million units, growing 3.8% compared

with 2013. Considering only the Alpargatas USA and Europe operations, expansion was a significant 20.0%.

Havaianas sales performance and recognition overseas is the result of a number of initiatives that have

brought the brand closer to consumers. Worthy of note in the fourth quarter were:

United States

• Opening of two stores: one in the Farmers' Market, in Los Angeles, and one in Linq, in Las Vegas.

• Expansion to new product categories with the launch of Havaianas accessories and rainboots for children.

• Launch of sandals 2015 collection.

Europe

• Growth in retail and e-commerce sales.

• Fall/winter “Samba in the rain” campaign with display of Havaianas rainboots in store windows and digital

media.

6.931 7.088 6.356

33.550

34.830

4Q13 3Q14 4Q14 2013 2014


SALES VOLUME

(million units)

- 8.3% + 3.8%


19

Exports

• Organization of MYOH - Make Your Own Havaianas event in South Africa and Indonesia.

• Exclusive Havaianas window display in the General Pants and Ozmosis stores in Australia.

• Special Christmas tree installation and extensive brand exposure at the Beachwalk Shopping Center in

Bali, Indonesia.

Net revenue

In the fourth quarter, net revenue for the

international sandals businesses grew

1.6% in reais. Particularly worthy of note

was revenue in the USA, which increased

36.9% in dollars compared with 4Q13. This

was the result of volume expansion and

greater POS penetration in the country.

Export revenues suffered mainly because

of the difficulty in getting products into

Argentina.

In 2014, the growth in net revenue was significant, with a 23.9% increase in reais compared with 2013.

Alpargatas Europe revenues grew 22.2% in euros, while Alpargatas USA revenues grew 17.3% in dollars.

Export revenues in dollars remained stable in the year on year comparison due to the retraction in sales to

South America.


In the fourth quarter, the gross profit from sandals sales in the overseas market totaled R$ 38.5 million,

remaining stable in relation to the same period of 2013. Margin decreased from 52.7%, in 4Q13, to 51.8%, in

4Q14, impacted by lower export revenue.

In 2014, at R$ 312.5 million, gross profit was 28.4% up on 2013, with gross margin increasing from 60.2%, in

2013, to 62.4%, in 2014. Margin benefited from sales growth, favorable exchange rates and the increased

share of more profitable channels in sales, such as the exclusive Havaianas retail in Europe and the United

States.

73.2

86.9

74.4

404.3

500.8

4Q13 3Q14 4Q14 2013 2014


NET REVENUE

(R$ million)


+ 17.3% in the USA

+ 22.2% in Europe

+ 36.9% in the USA

- 15.1 % in Europe


20

EBITDA

In the fourth quarter, EBITDA for the international sandals business was R$ 6.1 million negative (R$ 0.9

million negative in 4Q13) due to ongoing investments in building the Havaianas brand overseas, with more

advertising and store openings even with the stability of gross profit. For example, in the United States, there

were more Havaianas stores in operation in December 2014 than at the same time the previous year.

In the year, the EBITDA was R$ 90.9 million, 61.2% higher than in 2013. At 18.2%, margin increased 4.2

percentage points compared with the previous year. The annual variation in the EBITDA is explained by:

Increase of R$ 31 million in gross profit.

R$ 19.3 million more in operational expenses due to increased investments in communication, events,

store openings and expansion of points of sale and higher headcounts in overseas subsidiaries.

R$ 22.8 million with the positive FX impact resulting from the appreciation of the dollar and euro against

the real.

38.6

50.9

38.5

243.4

312.5

4Q13 3Q14 4Q14 2013 2014


GROSS PROFIT

(R$ million)


- 0.3% + 28.4%

60.2%62.4%

52.7%58.5%

51.8%


21

CONSOLIDATED RESULTS

Net revenue and sales volume

In the fourth quarter, consolidated net revenue was R$ 1,060.0 million, 9.9% up compared with 4Q13. The

performance in the period reflects the increases of 10.0%, 12.9% and 1.6% in net sales, in reais, from Brazil,

from Alpargatas Argentina and from sandals international, respectively.

In 2014, consolidated net revenue, at R$ 3,711.2 million, was 8.3% up on 2013. The performance in the

period reflects the annual increases of the following revenues:

• 6.1% in reais, from Brasil.

• 45.8% in pesos, from Alpargatas Argentina.

• 22.2% in euros, from Alpargatas Europe.

• 17.3% in dollars, from Alpargatas USA.


EBITDA

(R$ million)

Margins 14.0% 13.6% 18.2%

56.4

31.0

(19.3)

68.1

22.8

90.9

EBITDA2013

Gross Profit OperationalExpenses

Sub-total

FXand

Commodities

EBITDA2014


22

In a year in which Brazilians were more cautious about spending on consumer goods Alpargatas' increase in

revenues is worthy of note. In addition to higher sales volumes in Brazil and overseas, and efficient

commercial policy and sales management, the company sold more because its brands lead or dominate their

markets, enjoy widespread distribution and offer consumers products that innovate in design and technology

at prices compatible with all income levels.

In 2014, consolidated net revenue is positively impacted by the appreciation of the dollar and euro, and

negatively by the devaluation of the peso. Excluding all the FX effects, revenue growth in the year is 13.7%

as shown in the following chart:

964.9903.8

1,060.03,426.0

3,711.2

77.6

77.6

4Q13 3Q14 4Q14 2013 2014

CONSOLIDATED NET REVENUE

(R$ million)

+ 9.9% + 8.3%

Osklen’s net revenue in 4Q14

78.20470.393

81.185270.183

279.279

0.513

0.513

4Q13 3Q14 4Q14 2013 2014

CONSOLIDATED SALES VOLUME

(million pairs/pieces)

+ 3.8% + 3.4%

Osklen’s sales volume in 4Q14


23


(R$ million)

3,426.0

148.1 277.7 9.3

34.4

(0.3)

3,895.2

(237.2)

53.2

3,711.2

NetRevenue

2013

DomesticBusinesses

AlpargatasArgentina

AlpargatasUSA

AlpargatasEurope

Exports FXpesos

FXeuro/dollar

6,1%

+ 8.3%

+ 13.7%

NetRevenue

2014without

FX

NetRevenue

2014withFX


BREAKDOWN BY BUSINESS

54%41%

5%

Sandals

Sporting Goods

Textiles Argentina

53%35%

5%7%

SandalsSporting GoodsTextiles ArgentinaOsklen

4Q13 4Q14

52%42%

6%

Sandals

Sporting Goods

Textiles Argentina

55%38%

5% 2%

SandalsSporting GoodsTextiles ArgentinaOsklen

2013 2014


BREAKDOWN BY BUSINESS

76%

16%

8%

BrazilArgentinaSandals International

76%

17%

7%


4Q13 4Q14


BREAKDOWN BY REGION

70%

18%

12%


69%

17%

14%


2013 2014


BREAKDOWN BY REGION


24

Retail is an important means of value generation for Alpargatas. The company's exclusive stores provide

consumers with a unique brand experience because they may only find the full range of company products in

these outlets. At the end of the quarter, there were 644 units in operation in Brazil and abroad.


In the fourth quarter, consolidated gross profit totaled R$ 433.9 million, 15.5% higher than in 4Q13. At 40.9%,

consolidated gross margin was two percentage points higher than in 4Q13. The main factors explaining this

variation are:

R$ 54.1 million gross profit from Osklen.

Adjustment of prices above inflation and

increase in manufacturing productivity in

Argentina.

Increase in share of sandals, which have

higher margins, in Brazilian revenues.

Lower average price of sporting goods in

sales mix in Brazil, impacting net revenues of

domestic businesses.

Impact of FX on cost in reais of imported

finished products and rubber.

Impact of FX on cost of cotton in pesos.

Brand Brazil OverseasTotal

stores

Havaianas 389 102 491

Osklen 80 7 87

Topper - 11 11

Timberland 18 - 18

Meggashop/OutletAlpargatas

21 16 37

Total stores worldwide 508 136 644

375.7340.8

433.9

1,420.6

1,498.2

54.1

54.1

4Q13 3Q14 4Q14 2013 2014

CONSOLIDATED GROSS PROFIT

(R$ million)


+ 15.5% + 5.5%

Osklen’s gross profit in 4Q14

38.9% 37.7%40.9%

41.5%40.4%


25

In the year, consolidated gross profit reached R$ 1,498.2 million, 5.5% higher than in 2013. At 40.4%, gross

margin was 1.1 percentage point lower.

In 2014, 58% of the costs of goods sold correspond to raw materials; 24% to direct labor and 18% to general

manufacturing expenses.

EBITDA

In the fourth quarter, consolidated EBITDA was R$ 153.1 million, growing 12.4% compared with 4Q13. At

14.4%, margin was 0.3 percentage point higher than in 4Q13. The factors explaining the quarterly variation in

EBITDA are:

Higher gross profit from Argentina.

R$ 15.9 million more in operational expenses to support company growth, with investments in

communication, events, store openings and expansion of points of sale, as well as higher headcount in

overseas subsidiaries.

R$ 23.5 million from the consolidation of Osklen's results in 4Q14.

R$ 11.7 million resulting from the FX impact on the average cost of rubber and imported products.

Isolating the negative FX effect, Alpargatas has a consolidated EBITDA of R$ 164.8 million and a margin

of 15.5% in 4Q14.


26

In 2014, consolidated EBITDA was R$ 470.5 million (R$ 494.4 million in 2013), with a margin of 12.7%

(14.4% in 2013). Excluding the FX effect, 2014 EBITDA totals R$ 589.3 million, and margin represents

15.9% of consolidated net revenue.

CONSOLIDATED EBITDA

(R$ million)

Margins 14.1% 13.3% 15.5% 14.4% 14,4%

136.2

21.0

(15.9)

141.3

23.5

164.8

(11.7)

153.1

FXand

Commodities

EBITDA4Q14

Sub-total

EBITDA4Q13

GrossProfit

OperationalExpenses

Sub-total

Osklen

Margins 14.4% 15.2% 15.9% 12.7% 14,4%

FXand

Commodities

EBITDA2014

Sub-total

EBITDA2013

GrossProfit

OperationalExpenses

Sub-total

Osklen

494.4

135.0

(63.6)

565.8

23.5

589.3

(118.8)

470.5

CONSOLIDATED EBITDA

(R$ million)


27

Net income

In the fourth quarter 2014, consolidated net income was R$ 84.9 million, 16.8% higher than the figure for the

year ago quarter. The factors contributing to the increase in net income in the quarter were the higher

EBITDA generation, the result of the divestment in Tavex and the net income in Osklen. Income tax and

spending on restructuring the businesses in Brazil and Argentina reduced profit in 4Q14. The R$ 6.3 million

refers to 40% of Osklen's net income in the fourth quarter which belongs to the company's minority

shareholders.

For the year, consolidated net income was R$

280.2 million. At 7.5%, margin decreased 1.5

percentage point.

CONSOLIDATED NET INCOME

(R$ million)

8,4% 9,2% 8,5% 7.5% 8.0% MARGINS

72.7

16.9 6.2

(4.5) (4.8)(6.3)

4.7

84.9

NetIncome4Q13

EBITDA TavexDivestment

IncomeTax

BusinessesRestructuring

(Brazil andArgentina)

MinorityShare-holders(Osklen)

Others NetIncome4Q14

310.0280.2

2013 2014

CONSOLIDATED NET INCOME

(R$ million)


- 9.6%

Alpargatas’ stake in Osklen’s 2014 net income

9.0%

7.5%

7.3


28

Cash Conversion Cycle (CCC)

The average CCC for the year was 58 days, a decrease of 4 days compared with the average CCC for 2013.

This was due mainly to strong stock control and maintenance of accounts receivable days in a complex year.

Cash flow

On December 31st 2014, Alpargatas had a cash balance of R$ 485.6 million compared with R$ 814.4 million

on the same date of the previous year. Operational generation totaled R$ 194.1 million. The biggest positive

impact on cash in the 12 months was due to EBITDA, which totaled R$ 470.5 million. The most significant

disbursements were: (i) R$ 138.3 million in working capital to support business growth; (ii) R$ 138.1 million in

Capex; (iii) R$ 103.0 million in amortization of debts; (iv) R$ 251.7 million in payment of ownership interest in

Osklen; and (v) R$ 116.5 million in shareholder compensation.

Debt

On December 31st, 2014, Alpargatas’ consolidated financial debt totaled R$ 514.0 million, of which R$ 446.4

million denominated in reais and R$ 67.6 million in foreign currency, having the following profile:

814.4

470.5

(138.3)

(138.1)

1,008.5

21.8

(16.0)(103.0)

(251.7)(57.5)

602.1

(116.5)

485.6

CashBalance

as of12/31/2013

EBITDA WorkingCapital

CAPEX Subtotal

opera-tional

FinancialResult

Paymentof

taxes

Amorti-zation

ofdebt

Paymentof

Osklen

Others Subtotal

Paymentto

share-holders

CONSOLIDATED CASH FLOW

(R$ million)

Operational cashgeneration:

R$ 194.1 million

CashBalance

as of12/31/2014


29

• R$ 295.9 million (57.6% of the total) due in the short term, of which R$ 229.5 million in Brazilian currency.

The short-term debt in foreign currency is equivalent to R$ 66.4 million. This finances the working capital

of the overseas subsidiaries and is renewable on maturity.

• R$ 218.1 million (42.4% of the total) due in the long term, of which R$ 216.8 million in Brazilian currency

and R$ 1.3 million in foreign currency, maturing in accordance with the following schedule:

• 2016: R$ 64.5 million;

• 2017: R$ 26.3 million;

• 2018: R$ 25.3 million;

• 2019: R$ 24.9 million;

• 2020 on: R$ 77 million.

Banco do Nordeste do Brasil (BNB) and BNDES Finame

In 2012, the company contracted loans and financing from the Banco do Nordeste do Brasil (BNB) and from

the BNDES Finame credit line totaling R$196.4 million for the construction of its sandals factory in Montes

Claros (Minas Gerais state). The interest rates are prefixed from 2.5% a year – a cost that optimizes the

company's capital structure.

BNDES EXIM Pre-shipment

In August 2013, Alpargatas received credits of R$ 70.0 million, corresponding to the BNDES EXIM Pre-

shipment line of credit, at a fixed cost of 8.0% a year. These funds are to finance sandals exports and will be

amortized in six installments maturing in 2015.

Export Credit Note (NCE)

In February and July 2013 the company received, respectively, credits of R$ 25.0 million and R$ 10.0 million

corresponding to the Export Credit Note (NCE) at the fixed average cost of 7.5% per year. The credit line is

similar to the BNDES EXIM Pre-shipment operation, and will be amortized in one-off payment on the due

date in 2016.

Subtracting the debt of R$ 514.0 million from the cash balance of R$ 485.6 million, Alpargatas cash net of

debt position was negative R$ 28.4 million at the end of 2014, due to greater use of own capital to support

strategic investments, optimizing capital structure.


30

CAPITAL MARKET AND SHAREHOLDER COMPENSATION

2014 was a year of great volality on the Brazilian stock market, marked by high inflation, interest and

exchange rates and by a retraction in consumption in the major cities in the country. On December 31st 2014,

the company's preferred shares (ALPA4) were quoted at R$ 7.25, and its voting shares (ALPA3) at R$ 6.70,

prices respectively 46.1% and 43.3% lower than on December 31st 2013. From January to December,

Ibovespa depreciated 2.9%. At the end of the year Alpargatas was valued at R$ 3.2 billion on

BM&FBovespa. ALPA4 average daily trading volume in 2014 was R$ 5.7 million, 1.3% up on the average

daily volume traded in 2013. During the year R$ 84.3 million was paid out in interest on equity. Additionally,

in a meeting held on March 6th, 2015, the Board of Directors approved an additional dividend payment of R$

147.1 million on April 28th 2015. As such, total compensation for Alpargatas shareholders in 2014 will be R$

231.4 million, corresponding to 82.5% of the accumulated net income in the year. At the same meeting, the

Board of Directors decided to bring forward the payment of R$ 26.9 million in interest on equity to be paid out

on March 24th 2015, attributable to the mandatory annual dividend to be approved by the 2016 Annual

General Meeting.

CASH NET OF DEBT

(R$ million)

Cash Debt Cash net of debt

814.4 835.1 670.5

539.6 485.6

(556.8) (525.4)(401.2) (399.5)

(514.0)

257.6 309.7 269.3 140.1

(28.4)

Dec/13 Mar/14 Jun/14 Sep/14 Dec/14


31

OUTLOOK

Alpargatas begins the new year certain that it has the solid foundations necessary to guarantee its ongoing

growth in a period in which the Brazilian economy is undergoing a strong adjustment. This will require

company leadership to focus on growing net revenue, strengthen control over operational expenses, boost

cost productivity and, above all, prioritize cash generation.

In Sandals, the main challenges will be to increase Havaianas' leadership in the domestic market by

accelerating gains in market share; evolving the strategy of extending the brand to other product categories

and driving international expansion. Havaianas retail will continue to grow with the opening of stores in Brazil

and abroad, as part of the effort to boost awareness of the brand’s products and new categories aiming at

growing sales of non-sandals products.

The increased production capacity enabled by the Montes Claros plant will permit Alpargatas to meet

growing demand for Havaianas in Brazil and overseas, particularly in Asia, a region in which an office should

be opened in 2015.

Growth in Sporting Goods is supported by the advance of Mizuno and Topper as regional brands, and

Rainha and Timberland in Brazil. After having implanted a sustainable, long-term partnership with Mizuno

Co., the brand will continue to work on strengthening its leadership in the running performance segment and

in other categories. To do this, it will seek to increase brand equity among runners through higher marketing

investment; sponsorship of athletes, clubs and events; the implementation of a retail model and expanded

footwear production in Brazil. Topper will strengthen its identity as a Latin American sports brand in key

segments, such as soccer, running and tennis through the expanded offer of products for these sports, as

well as adjustments to the points of sale with a focus on communicating the products and developing

distributors in other countries in South America. It will also increment the casual footwear line in order to

boost the brand's perceived and aspirational value. The brand will also drive business growth through the

offer of apparel, accessories and balls. Rainha, through investment in points of sale, media and sports

relationships, will grow in the active running, casual and training footwear markets. In addition to striving for

greater growth and profitability, Timberland will act as a platform for new brands in Brazil.

For Osklen, in 2015 attention will be focused on capturing synergies in transaction (back office), production

and commercial (distribution to clients of current brands) activities, as well as preparing for international

expansion, which will gain strength from 2016.

Optimization of the manufacturing footprint via the Value Improvement Programme (VIP) and the review of

the logistics model will make the operations more competitive and further improve productivity, resulting in


32

improved profitability. The cost of commodity raw materials, in particular rubber, should be less volatile in

2015, remaining at a lower average levels than 2014.

Alpargatas will continue to be agile, always attentive to the opportunities that drive its businesses. The

objective is to grow and to strengthen the company that everyone knows: innovative, admired, respected and

concerned about people's quality of life, about the environment and about sustainability.

**************


33

ASSETS 12/31/2014 12/31/2013 LIABILITIES 12/31/2014 12/31/2013

Current assets 2,138,855 2,184,259 Current liabilities 995,623 1,014,522

Cash and banks 72,803 27,976 Trade accounts payable 396,898 384,055

Tempory cash investment 412,819 786,424 Loans and financing 295,931 275,311

Trade accounts receivable (net of provisions) 914,957 801,554 Debt reestructuring agreements 9,106 10,942

Inventories 595,233 467,528 Salaries and social Charges 150,873 127,176

Other receivables 46,585 31,828 Reserve for contingencies 10,819 6,755

Prepaid expenses 12,546 10,765 Provisions for Tax, Labor and Civil Claims 3,475 4,075

Assets held for sale - - Taxes payable 37,653 21,194

Other assets 15,572 - Interest on capital and dividends payable 2,074 2,135

Recoverable taxes 68,340 58,184 Other payable liabilities 88,794 182,879

Long-term liabilities 550,039 513,011

Loans and financing 218,072 281,523

Debt reestructuring agreements 43,020 50,731

Long-term assets 137,627 130,264 Provision for taxes 167,638 133,611

Recoverable taxes 28,465 20,777 Taxes Installments - 766

Deferred income and social contribuition taxes 53,209 58,000 Provisions for Tax, Labor and Civil Claims 86,222 -

Judicial and compulsory deposits 15,353 13,134 Reserve for contingencies 27,620 30,514

Other accounts receivables 40,600 38,353 Other payable liabilities 7,467 15,866

Equity 2,100,904 1,834,451

Capital 648,497 624,610

Permanent Assets 1,370,084 1,047,461 Paid-in capital 177,461 168,572

Investments 2,042 183,098 Treasury shares (85,003) (54,662)

Property, plant and equipment 698,095 624,264 Income Reserves 1,134,715 1,121,802

Intangible assets 669,947 240,099 Equity valuation (27,846) (56,811)

Hedge operation 2,802 (1,760)

Minority shares 103,178 -

Total assets 3,646,566 3,361,984 Total liabilities 3,646,566 3,361,984

Book value per share (R$) 4.34 4.35

Appendix I - Balance Sheet (R$ thousands)


34

4Q13 4Q14 2013 2014

Net revenue 964,888 1,059,951 3,425,959 3,711,162

Cost of goods sold (589,179) (626,025) (2,005,390) (2,212,917)

Gross profit 375,709 433,926 1,420,569 1,498,245

Gross margin 38.9% 40.9% 41.5% 40.4%

Operating revenues (expenses) (269,865) (324,542) (1,068,084) (1,153,713)

Selling expenses (217,571) (240,356) (823,259) (914,453)

General and administrative expenses (34,957) (59,011) (162,704) (191,527)

Management compensation (8,374) (10,634) (13,617) (16,756)

Amortization of intangible assets (6,512) (7,681) (25,074) (24,717)

Other operating revenues (expenses) (2,450) (6,861) (43,430) (6,260)

EBIT – Operating result 105,845 109,384 352,485 344,532

Operating margin 11.0% 10.3% 10.3% 9.3%

Financial income 19,169 13,513 55,545 66,712

Financial expenses (23,490) (26,160) (75,380) (88,606)

Foreign exchange rate variation (4,331) 5,228 41,853 (760)

Results in subsidiaries (18,226) - (27,087) (19,513)

Operating income 78,967 101,965 347,416 302,364

Income tax and social contribution tax (6,317) (10,754) (37,653) (15,836)

Minority interest - (6,377) 248 (6,377)

Net income 72,650 84,834 310,011 280,151

- -

EBITDA – R$ million 136.2 153.1 494.4 470.5

EBITDA margin 14.1% 14.4% 14.4% 12.7%

Appendix II - Income Statement (R$ thousands)

Documents

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